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Sunday, 19 April 2009

Class Warriors – This Time it’s Taxing

There are two schools of thought on the concept of higher taxation for the very well off: one suggests that this is mere envy and the most basic kind of class war, with the other saying that it’s just a convenient source of a little extra dosh.

As I showed in the earlier post on Class Warriors, it is easy to paint the picture of politicians like David Cameron and his chums as victims of envy, while failing to see that they are more likely to be the object of ridicule. Similarly, the idea that extra taxes on the best off is another helping of envy politics does not stand up to practical scrutiny. An example may serve to make the point.

I’ve previously mentioned my status as a freelance, and that, therefore, for me Gordon Brown has previous. Under his chancellorship, we got IR35 and, I suspect, Labour lost a number of votes. So what was the idea of IR35 – was it some kind of envy amongst the Labour brethren, or merely an extra income source for H M Treasury?

Answering that question should not detain anyone for long: the average freelance is never going to be in the top five per cent of earners, and has to cope with a market where rates and availability of assignments varies considerably. So, yes, there may be times without work for weeks, or even months. This was part of the quid pro quo before IR35, where freelances working through their own limited companies benefited from being able to pay less in National Insurance contributions, but when “between assignments” tended not to claim benefits.

Is anyone seriously going to suggest that those in the Treasury, or elsewhere in the government or the Labour Party, envied freelance workers? Pull the other one. IR35 wasn’t an exercise in envy, but the tapping of an extra source of income. Asking the best off to pay more in income tax is another such source. That is how the Treasury works, whatever the stripe of the governing party.

It’s nothing to do with envy – but all about cash flow. Boring but true.